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G10 Macro Rates Market Analysis – Weekly Review – 11th January 2021

Monday, January 11, 2021

With the Pacific G10 Macro Rates Team 
Welcome to the first Pacific G10 Macro weekly for 2021, which continues the madness of 2020 with harsh lockdowns and an attempted “coup” in Washington DC. The only predictable event was both sides claiming a victory after the eventual resolution of a trade deal on Brexit. Elsewhere positive numbers were reported from China, Taiwan and South Korea on trade, export, survey and industrial production. These announcements led to a stock indices putting in healthy returns for the end of year and a relatively limited response from government bonds.

Since the New year, markets have been in a positive mood with UST yields increasing by more than 20bp, and through the 1% barrier. This positive outlook has been driven by the expected economic impact from an increased number of vaccines. December’s US jobs data was weak but upward revisions to the previous months’ numbers meant that the market took it constructively. This positivity has been reflected in the nuanced language by FOMC members and there is now more confidence that bond purchases in H2 2021 will be tapered.

The potential insurrection by the outgoing US president and the arrival of three new significant variants of Covid19, (Japan, SA & UK) has largely been disregarded by markets.

North America
US: The Conference Board’s confidence measures all declined in December, whilst the ISM’s measures of manufacturing, new orders, prices, employment and services all increased. Core PCE Deflator (Nov) was weaker than anticipated at 0.0% MoM (0.1% exp., 0.0% prev.) and 1.4% YoY (1.4% exp., 1.4% prev.) but is expected to firm over 2021. December Nonfarm Payrolls dropped -140k (50k exp., 245k prev.), but there were net revisions of +135k to previous numbers resulting in a lower-than-expected unemployment rate of +6.7% (6.8% exp., 6.7% prev.) and an unchanged participation rate +61.5% (61.5% exp., 61.5% prev.) With the underemployment rate print at +11.7% (12.0% prev.)

Canada: The Canadian unemployment rate dropped to 8.6% (8.7% exp., 8.5% prev.) despite a change in employment of -62.6k (-37.5k exp., 62.1k prev.) due to a drop in the participation rate 64.9% (65.0% exp., 65.1% prev.)

Eurozone: Eurozone PMIs, retail sales and consumer confidence were weaker reflecting an increase in Covid19 infections and restrictions on activity. Core CPI +0.2% YoY (0.2% exp., 0.2% prev.) and the unemployment rate dropped to 8.3% (8.5% exp., 8.4% prev.)

Sweden: Swedish consumer confidence 92.3 (88.3 prev.) and retail sales 0.8% MoM (-0.4% exp., 0.5% prev.) were stronger as were the industrial orders, PMIs and manufacturing confidence. Recent sharp increases in Covid19 infection levels have not had time to be reflected in this data.

Norway: Norwegian unemployment was steady at 5.2% (5.2% exp., 5.2% prev.), retail sales strong MoM 2.9% (1.2% prev.) and industrial production bounced 1.8% MoM (-3.5% prev.) reflecting the Norges bank’s recent more upbeat tone.

Tokyo CPI fell -1.3% YoY (-0.8% exp., -0.7% prev.) wth the core measure at -0.4% YoY (-0.3% exp., -0.2% prev.) The Jobless Rate dropped 2.9% (3.1% exp., 3.1% prev.) as did retail -2.0% MoM (-0.8% exp., 0.4% prev.) and consumer confidence declined to 31.8 (32.5 exp., 33.7 prev.)


December retail sales and PMIs were slightly weaker, due to lockdown 2.0.

Australia: Nov retail sales reflected Victoria state emerging form lockdown with a strong 7.0% MoM (2.0% exp., 1.4% prev.) and housing data continued to show robust demand.  

New Zealand: Housing data continued to show robust demand and significant prices rises, ensuring thy will be a continued area of focus to legislators and the RBNZ.

 For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below  

Read the Strategy Information Sheet

IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation.

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